In This Article:
Volt Resources Limited (ASX:VRC), a AU$46.52M small-cap, operates in the basic materials industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building activities. Basic material analysts are forecasting for the entire industry, a strong double-digit growth of 16.44% in the upcoming year , and an enormous growth of 35.56% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. In this article, I’ll take you through the sector growth expectations, as well as evaluate whether Volt Resources is lagging or leading in the industry. Check out our latest analysis for Volt Resources
What’s the catalyst for Volt Resources’s sector growth?
As a whole, the basic materials sector seems like it has reached maturity in its life cycle. Companies appear to be vastly competitive and consolidation seems to be a natural trend. However, the industry is still facing many emerging trends including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the past year, the industry delivered growth in the teens, beating the Australian market growth of 6.90%. Volt Resources lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Volt Resources may be trading cheaper than its peers.
Is Volt Resources and the sector relatively cheap?
The metals and mining industry is trading at a PE ratio of 13.02x, relatively similar to the rest of the Australian stock market PE of 17.49x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.60% on equities compared to the market’s 11.30%. Since Volt Resources’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Volt Resources’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Volt Resources recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If the stock has been on your watchlist for a while, now may be the time to buy, if you like its ability to deliver growth and are not highly concentrated in the materials industry. However, before you make a decision on the stock, I suggest you look at Volt Resources’s fundamentals in order to build a holistic investment thesis.